Separate schemes

Prior to 5 April 2004 when an employer acquired the whole or part of any business of another employer they could make an election

To be treated as a different employer in relation to the acquired employees

Since 6 April 2004 when an employer acquires the whole or part of any business of another employer they may make an election for any of the following

To be treated as a different employer in relation to the acquired employees

To be treated as two or more different employers in relation to groups of acquired employees

To add some or all of the acquired employees to existing groups of employees

Note: Where an employer requests a new PAYE scheme for their employees who live in Scotland. The employer needs to be aware that following this process and having separate PAYE schemes for their employee who live in the UK (England, Wales & Northern Ireland) and Scotland may lead to additional work for them, increasing employer burden because the employer will be responsible for transferring employees between the separate PAYE schemes where an employee moves to or from Scotland.

HMRC is responsible for identifying who is liable for the Scotland rate of income tax based on the individual’s sole or main place of residence. HMRC will automatically notify the employer (P6/P9, Notice to Employer) and employee/individual (P2, Notice of Coding) through the tax code which will have an ‘S’ prefix indicating that the Scottish rate of income tax should apply.

An employer may elect to have groups of employees dealt with under separate schemes for different parts of the payroll. This process is also known as scheme splitting. To deal with an election for scheme splitting, follow steps 1 - 21 below. The guide is presented as follows

Enquiries from employers

Election made where employer acquires a business

Where an employer acquires a business they may elect for one or more separate schemes. If this election is received within 90 days of the acquisition it will come into effect for the year in which the acquisition was made. On receipt of an election in these circumstances you should

2.

Consider whether the election is valid, in particular whether it was made on time

* If you are unsure of the validity of the election you will need to refer this for guidance

3.

Otherwise, use Function EMPLOYER SET UP to open a new employer record(s). See PAYE20136 for further guidance

4.

Write to the employer to acknowledge receipt of the election and advise the employer

* That a new employer record(s) has been opened

* The employer references allocated to the new record(s)

And

* Ask for a list of all employees to be moved to the new scheme(s). The list must show

* Each employee’s full name

* Each employee’s National Insurance Number

And

* Indicate which of these employees are paid tax credits but PAYE deductions are not made

5.

BF to await a reply. On receipt of the required details, for each separate scheme follow the guidance at PAYE30055

6.

Use Function AMEND EMPLOYER NOTES to ascertain whether any dispensation details are held on the existing employer record. If so

* Use Function AMEND EMPLOYER NOTES to note these details on the new employer record

Election made for an improper purpose

An employer’s election may be disregarded if, within 60 days, a decision is made that the election has been made wholly or mainly for an improper purpose. An improper purpose is essentially for the purpose of reducing scheme size in order to achieve one or more of the following

Avoid the requirement imposed on large and medium employers to file an annual return online

Avoid the requirement imposed on large employers to make payments electronically

Receive an incentive payment as a small employer for voluntarily filing an annual return online

On receipt of an election in these circumstances you should

14.

Consider if the election is for an improper purpose

* If you are unsure you will need to refer this to a higher officer for guidance

15.

Write to the employer

* Stating that it appears that the election is made wholly or mainly for an improper purpose

If the employer does not accept your decision, they have 30 days from the date you issue the decision letter within which to send you an appeal. Once they have appealed you may offer a review or the employer may request a review by HMRC. Alternatively they may appeal to the First-tier Tribunal. - see the Appeals Review and Tribunals Guidance (ARTG) for more information about what to do if you receive an appeal